Producer Prices Fall On Energy Prices

Inflation headlines are subdued, whether at the consumer level as in Wednesday's CPI report or at the producer level in today's PPI-FD report. Producer prices in January fell 0.1 percent or a second month in row, pulled down by a 3.8 percent drop in energy that follows 4.3 and 5.1 percent monthly declines in December in November, the latter the month when oil collapsed from $70 to $50.

Food is also a negative for January, down 1.7 percent that reflected sharp drops for fruits and vegetables and, in an early negative for the first-quarter trade balance, a 2.0 percent price decline for food exports.

But there are signs of inflationary life in the data, if only limited. Excluding food and energy, the core rate rose a moderate 0.3 percent which is at the high end of Econoday's consensus range. Autos were up 0.5 percent in January with light trucks 0.3 percent higher. Computers and cigarettes were both 0.4 percent higher with construction, after two months of softness, 0.6 percent higher.

Service prices posted a deceptively moderate 0.3 percent increase though trade services, a closely watched sub-component that tracks prices at the wholesale and retail levels, did jump 0.8 percent which follows, however, a 0.1 percent decline in December. When excluding trade services as well as food and energy, producer prices rose 0.2 percent which matches Econoday's consensus and is up from no change in the prior month.

Producer prices are watched for signs of early inflation pressure and, due to energy and its central place in the price chain, the indications are perhaps a little on the disinflationary side.